The economy: time to think ‘outside the box

The Chancellor’s 2013 budget (Wednesday 20 March) will come and go and make absolutely no difference to the UK economy. It is time to think ‘outside the box’.

The concept was pioneered in the United States by the Walt Disney Company. Their executives used a nine-dot puzzle to encourage lateral and creative thinking.

Here are FIVE suggestions to help stimulate the UK economy:

1. Re-energise the Financial Services industry in two main ways –

a) Recognise that the 2012/2013 budget (£578.4m) is far too high, order immediate cuts and rebate £50m to the member firms. This will strengthen balance sheets, encourage employment and lift morale.

b) Tell the FSA (FCA) that “enough’s enough.” Liberalise the industry by a new approach to regulation allowing markets to control themselves (this was the system that allowed the AIM to become the most successful junior market in the world).

2. Create a new Enterprise Stock Market (based on the now defunct PLUS Markets) to provide a flow of early stage equity finance. It will be staffed by proven market professionals and underwritten by Government (by repayable loans) so answering the issues of risk and liquidity. It will require professional advisers whose fees will also have to be subsidised. The result will be a boost to SMEs, a strengthening of their balance sheets and a greater willingness of the banks to lend.

3. Increase the limit of the SEED/EIS scheme for early stage equity fund-raising to £500,000 and extend it for two years. Property assets (providing the business is not a property development business) should be included in the assets test so allowing retail businesses (which own their own premises) to benefit. To-date the SEED/EIS has failed to have any impact.

4. Scrap the Department for Business, Innovation & Skills and transfer all the resources to the Treasury. The BIS has been a complete disaster and has no effect whatsoever. The best financial brains lie within the Treasury and provide the shortest link to Government and the Regulatory authorities.

5. Increase the subsidy on first time mortgages to stimulate the housing market. The ‘funding for lending’ scheme is not the right way. Direct subsidy is the only way to boost this immediate route to community cash flow. A house sale equals another purchase equals estate agent’s and legal commissions, more business for local shops and is socially desirable.

Thinking outside the box seemed to helped Mickey Mouse: over to you, Chancellor.

3 comments for “The economy: time to think ‘outside the box

  1. Barry Hocken
    22 March, 2013 at 12:42

    Arguably, the main function of any stockmarket is to facilitate the raising of equity capital for companies. Thanks to current regulatory constraints that ideal is being undermined, and investors who used to invest in smaller companies on junior markets are being driven to invest in main market stocks. In the UK it is the FTSE 100 and 250 companies which investors are concentrating on. In the US it is a similar story: the Dow Jones has recently hit its all – time peak thanks to the weight of money chasing the stock of the constituent companies. Politicians from all parties are waking up to the importance of the SME sector to the wider economy, and the crucial role they play in helping to create new jobs. They should bear in mind that investing in a FTSE 100 company will not create those new jobs.

    Unfortunately there is a major disconnect between the good intentions of the politicians and the needs of the SMEs. The banks are still not lending to this sector and equity finance is cut off because investors in SME stocks are deterred by compliance. Hence the high trading volumes in FTSE constituent stocks.

    Exactly the same thing is happening in the US where the other new phenomenon is crowd funding. As yet, this is an unregulated area of the market which is attracting large numbers of investors who would probably be investing in OTCQX or NASDAQ securities in the US or AIM in the UK. Crowd funding and social media are also gaining traction in the UK – until there is wrongdoing and the regulator has to step in with measures to protect investors. So, what can be done to make regulation less onerous, and encourage investors back into small cap markets? If one word – ‘regulation’ summed up the problem another word – ‘diversification’ could be the answer.

    One of the fundamental rules of investing in stocks and shares is to spread the risk. In the ideal world, an investor builds a portfolio of stocks which reduces the inherent risk of having all his eggs in one basket. This is the principle of prudent investing which the regulator cannot have a problem with. So the regulator takes this principle and turns it into the only rule which a compliance officer needs to adhere to. No client of any stockbroking firm can invest more than ten per cent of his money in small cap securities. After that, the investor is on his own – caveat emptor applies to his holdings in small cap stocks.

    It is time that investors were allowed to take control of what they invest in rather than be dictated to by the regulators.

    • 23 March, 2013 at 12:04

      Barry—Excellent post! The scenario you have outlined (mentioned in my blog numerous times) has been creeping up on many of us for years. The former Plus/Ofex, AIM a micro-caps are being ignored by brokers and fund managers because RISK is being controlled by compliance & regulators. To take an opposite contrarian view in portfolio management is nigh on impossible now because there are just too many people calling the shots viz-a-viz suitability. I agree with your scenario about spreading of risk but I would challenge the ‘wealth’ route on this as it was drummed into me years ago that this policy should ONLY really be adopted at the beginning of a ‘bull’ market. I would argue strenuously that we are are still in the mid-stages of a correction that started when failed in 2000. The global crisis has been created due to 2 things outside the control of PCIAM’s, namely a gross universal accountancy fraud (off balance sheet is the name of the game for big businesses) and global derivatives growth of around $700 trillion which of course is often kept off-balance. The alarming scale of synthetics and other equally baffling concepts designed to fleece investors have largely been ignored by REGULATORS who are bought and sold for by central bankers, politicians and bankers. I’m very dismayed by RDR in UK which is why I’m outside of the regulated universe now. Being told to go back to school, relearn the new age garbage after 36 years in the City and 40,000 investment trades conducted by myself personally has left me totally speechless. Experience appears to have very little voice these days. London will be the loser but so far no other centre has made a credible bid for its slice of the cake. Sooner or later a new exchange will evolve encompassing the CrowdFunding idealogy of ‘wealth’ creation. The entire global monetary system could well be at the early stages of a total rethink but according to the REGULATOR and compliance people Gold is NOT a credible investment. Actually it’s a currency and far more credible than BitCoin and other fiat paper which is ably supported by the establishment who seem to have forgotten how markets operate or what their raison d’etre is.

  2. Richard Hoblyn FCSI
    20 March, 2013 at 09:55

    Tony- There are some good ideas here BUT I regret to say that the chances of any improvements or assistance from a. the UK government (that is Labour/Con/Lib) b. the Regulators c. the banks d the accountants e the lawyers ALL of whom have vested interests in keeping the status quo are somewhere between ZERO & NEGATIVE ZERO. I’m not sure if you saw y’day’s Citywire comment re Fyshe Horton (after the recent failures of Pritchards & Seymour Pierce) but hidden in the article is the hub of the problem. It said…”plans to transition Fyshe Horton Finney from a provider of mainly traditional stockbroking services to a business offering comprehensive and holistic wealth management and financial planning services”…here we have confirmation that stockbrokers are being forced to relabel themselves…the trad skills of private stockbrokers are categorically being extinguished…here is proof. But the problems as you know don’t stop there. Since the 1980’s ALL professionals in UK have trespassed on each others patches and have trampled stockbrokers and their skills into virtual extinction. My father, a renowned broker as you know, and others of his generation always used to say to me when I was going through my apprenticeship (suppressively ignored by RDR and compliance personnel) that investors (referring to broking clients) should NEVER take investment advice of any kind from accountants, lawyers and others purporting to be investment experts. The old adage “there is no such thing as an expert” was drummed into me as lawyers started becoming investment experts, accountants started providing investment expertise, IFA’s could transact investment business, banks did the same, in fact everyone today is an EXPERT in investment of some kind and the very people who functioned in a once admirable exchange are left without a paddle in a market that is simply disjointed and disconnected from market principles. Without an exchange run on personal liability I cannot see any light especially as new age “wealth” smash investors with charges ranging 0.8% to 2%, focus on management rather than “wealth creation” and absorb new absurd risk parameters and metrics c/o our Regulators. In short everything today is HIGH RISK but ‘wealth” firms think that Gold is HIGH RISK whilst fiat currencies (that’s where the “wealth” get their charges from), equities and fixed interest are labelled accordingly dependent on some dreamy justification process. Some firms are NOW even run by their compliance departments and it looks to me as we’re one click away from Regulators actually running business.

    Although i passinately hope that some Enterprise can be put back into Britain I’m rapidly of the the view that the “establishment” are helping themselves and making things up as they go along. An example is the UK reaction to the Cypriot crisis……more on that later.

    To support my view re “trespass” of business Citywire conducted a “wealth conference” several weeks ago. The 3 main players presenting themselves as “wealth managers” were 1. Smith & Williamson (roots as chartered accountants). 2. Brooks MacDonald (roots as IFA’s) 3. Cazenove Capital Man (historically had a small private client dept but have bulldozed into top end of “wealth” as everyone wants the high fees and lifestyles to go with it). No traditional stockbrokers were present.

    It’s about time that the PCIAM industry put something back but so long as we have REGULATORS there is (NEGATIVE) ZERO chance of any sensible offering or improvement.

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